The main legal point established in the judgment is that the control and management of a Hindu undivided family's affairs must be situated wholly outside the taxable territories to be considered non-resident, as per the interpretation of S. 4A(b) of the Indian Income-tax Act.

Judgment

S. K. Das, J. (For himself and Kapur, J.) : This is an appeal by special leave from the judgment and orders of the High Court of Bombay dated 16-2-1955, in a reference under S. 66 (1) of the Indian Income-tax Act, 1922, hereinafter called the Act. The reference was made in the following circumstances.

2. The Hindu undivided family of one Gandalal carried on business in cloth in Wadhwan in Kathiwar, which at the relevant time was outside British India. The family consisted of Gandalal and his four sons, (1) Girdharlal, (2) Hansrai, (3) Nandlal and (4) Ramniklal. In 1944 Nandlal came to Bombay and started a cloth business in partnership with other persons, the partnership being known as Amulakh Amichand & Co. Nandlal s share in the partnership was ten annas and that of his three partners, who belonged to the family of Amulakh Amichand, six annas. It was stated that the family of Amulakh Amichand which was a well known business family of Bombay, did not supply and capital to the partnership and Nandlal alone was the financing partner. On 13-4-1944, Nandlal received a sum of Rs. 50,000 from the Hindu undivided family of which he was a member, and a further sum of Rs. 50,000 on 27-4-1944. Two other sums aggregating Rs. 50,000 were also received from the Hindu undivided family on 8-6-1944 and 29-6-1944. The case of the assessee was that a sum of Rs. 1,00,000 was given to each son by the father and the sums of money received on June 8, 1944 and June 29, 1944, were a loan by the Hindu undivided family to Nandlal. Therefore, the case of the assessee was that Nandlal became the partner of the firm of Amulakh Amichand in his individual capacity.

3. The case of the Department, however, was that the total sum of Rs. 1,50,000 sent to Nandlal by the Hindu undivided family was utilised as capital in the cloth business of the partnership known as Amulakh Amichand & Co. Subsequently, Girdharlal, another brother of Nandlal, came to Bombay and joined the firm. Out of the share of ten annas of Nandlal, Girdharlal was given a share of five annas. The partnership firm of Amulakh Amichand and Co., then started a cloth business at Banaras, and the partners of the firm at Banaras were the partners of the Bombay firm of Amulakh Amichand & Co., and an outsider from Banaras. A third brother of Nandlal also joined the Banaras firm, but he did not bring any capital.

4. For the assessment year 1945-43 the Income-tax Officer held that the Hindu undivided family of Gandalal was resident in the taxable territories (namely, British India), and hence he included the sum of Rs. 1,50,000 in the income of the family under S. 4 (1) (b) (iii) of the Act as having been brought into or received in British India in the relevant year and made an assessment on that basis. The assessee appealed to the Appellate Assistant Commissioner Bombay, but without success. Then, there was an appeal to the Income-tax Appellate Tribunal, Bombay, Two questions were raised before the Tribunal:

"1. Whether Nandlal represented the Hindu undivided family of Gandalal of Wadhwan now in Saurashtra, in the firm Amulakh Amichand & Co., Bombay, and later on in the firms Amulakh Amichand & Co., Bombay and Banaras.

2. Whether the Hindu undivided family of Gandalal was resident in the taxable territories in the relevant years of account."

The Tribunal held on the first question that Nandlal and later Girdharlal joined the Bombay firm and also the Banaras firm of Amulakh Amichand & Co., as representing the Hindu undivided family of Gandalal and the money for starting the Bombay business came from the Hindu undivided family. Accordingly, the Tribunal held that Nandlal was properly assessed in the status of a Hindu undivided family. On the second question the Tribunal held in favour of the assessee and came to the following conclusion:

"The business at Bombay and later on the business at Banaras cannot in our opinion, be considered to be the affairs of the Hindu undivided family of Gandalal. These two